Issue link: https://maltatoday.uberflip.com/i/916779
11 maltatoday SUNDAY 17 DECEMBER 2017 News As Malta's financial services look set to face greater pressure in the coming months with the country having just barely avoided being added to an official EU blacklist of tax havens, there is still disagreement on the system's shortcomings – if any – and how to rebuild the country's reputation 1 14 8 5 11 6 7 9 10 2 17 1 The whole picture and nothing but the whole Tax matters have to be decided by unanimity in the EU but last week Malta just avoided being labelled a tax haven by the European Parliament. It was an amendment put forward by the Socialists and Democrats that called for Malta, Luxembourg, Ireland and the Netherlands to be placed on the EU's black list of tax havens. The justification put forward to blacklist Malta was that foreign investment amounted to 1,474% of the size of the island's economy. This figure from the National Statistics Office was described as "a clear indication" that Malta was "facilitating excessive profit-shifting activities at the expense of other EU member states". The European Parliament debate was driven by the yearning of the larger countries like Germany and France to harmonise corporate taxes across the EU - Konrad Mizzi and Keith Schembri were not the reason for the debate. But numbers can be odious when trying to drive home a point, especially if they only give a partial picture. A debate on taxation matters cannot be held unless it is contextualised within the disparity that characterises the economic and social progress of the different member states. Trade figures out last Friday show Germany with a huge trade balance of €206.7 billion between January and October. This means that Germany exported more than it imported from the EU and the rest of the world. Germany is one of just 11 member states that registered a trade balance but it outstripped the rest by a long shot. A breakdown of that figure shows that Germany registered a trade balance with its EU partners of €58.7 billion. On the flipside, Malta registered a trade deficit of €2.6 billion, meaning that it imported more than it exported. These numbers did not feature in the European Parliament debate and yet they are important. Why? A large trade surplus means money from other EU member states readily flows into the German economy, bolstering job creation there. This is not a bad thing but this heavily-skewed, one- sided flow also says a lot about the inability of other member states to be competitive. This is where the use of taxation becomes an important tool for economies on the periphery and yet MEPs berating Malta were not interested in this argument. It is true that MEPs are reflecting the anger of their constituents afflicted by years of austerity as the rich find ways of slithering around to pay the lowest tax possible. But Malta can hardly be faulted for the pain endured by voters across the EU. The island also passed through a painful re-adjustment period soon after joining the union. The VAT rate was increased to 18% from 15% in 2004. New excise taxes were introduced in the year after that. Public holidays falling on weekends stopped being compensated by additional vacation leave and the pensionable age was increased to 65 for both men and women. Public companies such as Sea Malta and Maltacom were privatised and some closed down. Energy prices for households and businesses increased through the imposition of a surcharge to cover rising oil prices. The measures hurt people and yet they also helped the country weather the worst impacts of the 2008 crisis. The competitive taxation system on its own cannot explain Malta's success despite the impression given by some MEPs and foreign media outlets. A debate on tax harmonisation that ignores the wider context does little justice to the complexities that shape the different economies across the EU. MEPs berating Malta's tax system have only painted a partial picture that ignores the economic and social disparity between the different EU member states i n f o r - mation, as well as t h e exchange of tax rulings and advance pricing arrangements in the transfer pricing field," Farrugia said. Bonello echoed this senti- ment and said there was no doubt that Malta's interna- tional fiscal regime was con- sistent with international standards of taxation and avoidance of harmful tax competition set by both the OECD as well as the EU. "Malta cannot be considered a tax haven because [it] is not a nest of secrecy and abides by multilateral international conventions for exchange of information," he said. "Malta automatically, that is without even being requested, exchanges information relat- ing to dividends and interest earned by non-residents in Malta with a large number of participating jurisdictions, in- cluding all EU States, in order to combat tax evasion." Cacopardo said hiding be- hind the EU unanimity rule on taxation issues would not get Malta anywhere, as Ire- land had learnt in the Apple case. "At the end of the day, the matter is not just one con- cerning taxation," he said. "It will also involve competition rules and rules regulating state aid, as the legal infra- structure helping the avoid- ance of taxation is in effect a mechanism for state aid." And finally, he added, it was an issue of tax justice as a result of which tax should be paid where the profits are generated. Tax harmonisation Farrugia said that discus- sions on tax harmonisation within the EU still require an in-depth assessment and evaluation of the impact this would have on the attractive- ness of the European Union to non-EU FDIs and equally so on the individual member states given their sheer eco- nomic diversity. "To hypothesise [at this stage] is to sensationalise," he said. But Bonello still maintains that the country's reputation had suffered because of the attention focused on its finan- cial services, as well as other accentuating circumstances, for which both the govern- ment and the opposition are to blame. He said the government was at fault for rubbing interna- tional partners the wrong way, both for what it did as well as for what it failed to do in other circumstances. "One major cause of such damage is having a govern- ment minister and the Prime Minister's Chief-of-Staff caught out with a Panama company and all over the globe trying to find a bank prepared to open a bank ac- count for their secret com- pany," he said. Bonello said that not only had the government retained the two in their positions in- stead of showing them the door, but they had then flatly refused to appear at a meeting of the Pana Committee as if they were not public officers. "The Opposition is at fault when, sometimes overtly, and worse still on other occasions underhandedly, it badmouths Malta as a Mafia State, or a country where there is no rule of law or a centre for money laundering, none of which is the case," he said. He said the Opposition could not say Malta was a Mafia State or that there is no rule of law, and then expect to be taken seriously when it says it is defending Malta from be- ing labelled a tax haven. "The Opposition must real- ise that the failure of our in- ternational financial services will not result in improved fortunes for its dismal popu- larity," Bonello said. "And even if it should find itself in government it will have lost the goose that lays the golden egg." pcocks@mediatoday.com.mt Paul Bonello KURT SANSONE